HengTen Networks Group Limited (HKG:136): Financial Strength Analysis
Stocks with market capitalization between $2B and $10B, such as HengTen Networks Group Limited (HKG:136) with a size of HK$21b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine 136’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of HengTen Networks Group’s financial health, so you should conduct further analysis into 136 here.
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Does 136 produce enough cash relative to debt?
136 has sustained its debt level by about CN¥52m over the last 12 months including long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at CN¥1.2b for investing into the business. On top of this, 136 has generated CN¥323m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 627%, meaning that 136’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 136’s case, it is able to generate 6.27x cash from its debt capital.
Can 136 meet its short-term obligations with the cash in hand?
Looking at 136’s CN¥364m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of CN¥1.4b, with a current ratio of 3.73x. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Is 136’s debt level acceptable?
With a debt-to-equity ratio of 5.2%, 136’s debt level is relatively low. This range is considered safe as 136 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if 136’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For 136, the ratio of 177x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving 136 ample headroom to grow its debt facilities.
Next Steps:
136 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how 136 has been performing in the past. You should continue to research HengTen Networks Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 136’s future growth? Take a look at our free research report of analyst consensus for 136’s outlook.
Valuation: What is 136 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 136 is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
